FUNDS UNDER SUSPICION: THE SHAKE-UP

FUNDS UNDER SUSPICION: THE SHAKE-UP; Defections Lead to a Shake-Up at Putnam

By GRETCHEN MORGENSON

Published: November 4, 2003

Correction Appended

Lawrence J. Lasser, the embattled chief executive of Putnam Investments, resigned yesterday, less than a week after federal and state securities regulators sued the mutual fund company and two of its portfolio managers for fraud.

The departure of Mr. Lasser, who is also a director of Marsh & McLennan, the insurance company that owns Putnam, was almost certainly hastened by the rising tide of customer defections from Putnam. Managers of large pension funds, disturbed by the regulatory accusations of improper trading by some Putnam portfolio managers, have withdrawn billions from the fund company since the regulatory suits were filed last Tuesday.

Regulators contended in their suits that Putnam, the nation's fifth-largest mutual fund company, engaged in securities fraud by failing to disclose to fund shareholders or to its board of trustees a series of personal trades by six of its managers in nine funds. The trading, which came at the expense of public shareholders, began in 1998 and in one case, continued until the spring of this year.

While executives at Putnam uncovered the improper trades in 2000, the fund managers were not punished and continued in their jobs managing client money. Only after securities regulators in Massachusetts and Washington had filed suit against the company did Putnam fire two of the managers involved. Yesterday, Putnam said the four other managers involved in improper trading had left the firm.

Succeeding Mr. Lasser as chief executive of Putnam is Charles E. Haldeman, a senior managing director at the company and co-head of investments. Mr. Haldeman, 55, and known as Ed, is a relative newcomer to Putnam; he joined the fund giant in October 2002 from Delaware Investments and Lincoln National Investment Companies, where he was chief executive.

Marsh & McLennan also announced the creation of two new positions. Steven Spiegel, Putnam's chief of global distribution, will become the fund company's vice chairman. And A.J.C. Smith, who is known as Ian and is the former chief executive of Marsh & McLennan and a Marsh director, will become chairman of Putnam, which is based in Boston.

''M.M.C. and Putnam are committed to seeing that the interests of Putnam's clients and investors are well served,'' Jeffrey W. Greenberg, chief executive of Marsh & McLennan, said. ''We are taking actions today to address the issues that are confronting Putnam. The kind of conduct that occurred has no place at Putnam. We are taking measures to see that this does not happen again.''

A spokeswoman for Marsh said Mr. Lasser would not be available for comment. The four portfolio managers who have left Putnam are Omid Kamshad, chief investment officer of international equities; Geirulv Lode, senior portfolio manager, global core equities; Carmel Peters, director of emerging markets equities; and Justin M. Scott, head of three funds, including specialty growth and small-cap core equities. The other two managers were not identified by Putnam.

Overseeing more than 100 mutual funds for more than 12 million shareholders and 401(k) plan participants, Putnam is a force in the money management business. The firm has about $270 billion under management.

Mr. Lasser began his career at Putnam in 1969 as an analyst whose job was to identify promising stocks that the fund company could buy for its clients. He became the fund company's chief executive in 1986 just as the mutual fund industry was entering what would be a period of explosive growth. He became a director of Marsh & McLennan in 1987 and is on the board of the Investment Company Institute, the mutual fund industry's lobbying organization.

But Mr. Lasser's rise to the top of Putnam was not the result of any great acumen for stock picking, former associates said. Rather, his success was built on an ability to get big brokerage firms, like Merrill Lynch and Morgan Stanley, to include Putnam funds on their lists of preferred mutual funds for their sales staff to offer investors.

When Mr. Lasser joined Putnam, it had a reputation as a venerable, conservative and respected money management firm. The company was founded in 1937 and traces its heritage back to 1830 when Massachusetts Supreme Judicial Court Justice Samuel Putnam established the Prudent Man Rule, a legal foundation for responsible money management.

Under Mr. Lasser, Putnam exchanged its boring investment style for a brassy one that was more dependent on aggressive marketing than on astute investment management.

Marketing began to take precedence among Putnam management in the early 1990's, one former manager explained, after several new funds attracted far more investor money than had been expected. Putnam executives seemed to realize that the company could grow and set itself apart by designing mutual funds that met changing fashions. And they began collaborating with some of the nation's biggest brokerage firms to create funds that would meet the investor demand of the moment. Paying outside brokers handsomely to sell Putnam funds practically guaranteed their success.

Correction: November 5, 2003, Wednesday An article in Business Day yesterday about the resignation of Lawrence J. Lasser, former chief executive of Putnam Investments, referred incorrectly to shareholderlosses caused by the improper trading of fund managers. Putnam has estimated that managers made $700,000 in improper gains -- not that shareholder losses were $700 million.